Jevons' Paradox is a misnomer; it is really no paradox at
all. The idea that it is a paradox assumes that the
price-demand curve for product is flat. This is a
notion that most students of economics would laugh at.

This is best illustrated with an example. Let's suppose
that I'm in the widget business. The old widget-making process uses
one hogshead of floo at $10 to make one widget; at $15/widget I can
sell 1000 widgets a month and I make $5000. If I improve my process
to use only 1/2 hogshead of floo per widget, I can sell for $10 and still
make $5/widget. Here's the "paradox": suppose that people will
buy 3000 widgets/month at $10 each so my floo consumption goes from 1000
hogsheads/month up to 1500. Floo could go to $15/hogshead and I'd still be
making $7500/month compared to my original $5000/month. Everyone is
better off: I make more money, the floo producers make more money,
and the public enjoys 3 times as many widgets. Even
Wikipedia
has it right.

Jevons' Paradox only applies where supply is not limited by other
factors. This does not apply to oil; all the money in the world cannot
put more in the ground nor change the geological constraints on its rate of
production. Price has some effect on the recovery methods used,
but it mostly decides who gets what's produced. If we doubled our
efficiency of using oil, either we could consume twice as much of its
products while paying the same price, consume lots more and grab even more
of the oil with the higher price we can pay, or hold our consumption
to less than double and watch the price of oil go down.

At least it would go down temporarily; depletion will eventually bring
the supply back down and cause the price to be bid up once more. But
the ability to pay a greater price has a salutary effect: it makes
other sources competitive. Suppose that the producer of $10/hogshead
floo gets it by mining his raw material and pressing out the liquid; if
there is a process for making floo from grape leaves and willow bark at
$12.50/hogshead, the improved widget process opens up an entirely new
source of supply. So long as the viniculturists and coppicers
can supply the raw material for 1500 hogsheads a month, the price of
floo will remain pegged at $12.50 even if the miners go out of business.

This bears a deliberate resemblance to our situation with petroleum
and its substitutes. Biofuels and batteries are expensive, and their
production costs have to come down before they're competitive; worse,
the further off the prospect of price parity, the less likely people
are to invest to make it happen. But every increase in the price
of petroleum brings that point closer. The cost of alternatives
will hit the breakeven point for one use, and then another, and another.
The bigger the industry, the greater the yield from accumulated experience;
the greater the cost of petroleum, the faster the investment in new technology
will come. The more efficient the use of the alternatives, the more
business they will take away from today's suppliers.

This will work so long as the alternatives do not run into resource
constraints of their own. Corn ethanol is almost there already (it's
likely that resource constraints and the consequent price boosts are the
entire purpose of the ethanol program), but cellulose resources in garbage
and crop and forestry wastes are very under-utilized. The wind
capacity of the United States stands at about 10 GW out of an estimated
1.2 terawatts possible (and another 900 GW on the continental shelves),
and solar is barely on the map.

We won't have to worry about competing uses for waste biomass until
we're using a lot of the waste. It would take decades to build
out the continental wind resources alone, and I can't see us worrying
about competing uses for solar energy for a very long time.

To a first approximation, the likely product of Jevons' Paradox for
alternative energy is to make it more attractive and more widely used.
Efficiency is our friend, and as for the paradox, I say bring it on.

One paradox I've been considering recently is the opinion of some environmentalists regarding renewable energy source. They all say we should be moving to renewable energy sources, which undoubtedly we should. But they don't like wind farms because "they are ugly". They don't like hydro schemes which involve modifying the landscape or water flows because this upsets the ecosystem. They don't like any form of big solar schemes, because they're an eyesore. They don't like farming because this causes long term damage to the land and soil. On one hand, they're telling us to do one thing, but on the other hand they're saying they don't want it. It's classic NIMBY stuff.

Not really related to your post, but I thought it was another interesting paradox.

EP: It's nice to see you bringing in the argument from economics, because that's just the way our economy works. The only way alternatives will be alternatives for the mass population is if the alternatives are cost-effective.

gitch: I'm not so certain that the NIMBY folks are enjoying a paradox so much as they're engaging in rather blatant hypocrisy. Then again, I don't think the NIMBY folks (in general) are as affected by the cost of energy as the rest of us (nevermind that energy is still pretty cheap, and historically cheaper as technology has been improving--and it will continue to get cheaper, even with this hiccup over petroleum).

The way I look at it, Jevons' Paradox describes a reasonable feedback loop. It will be a factor in any market, but it will only be a defining factor in very specialized conditions.

It's easy to say "everything else being equal" but hard to find everything else being equal out there in the real world. ;-)

In a hypothetical world in which production volume was fixed, and prices were percieved as high, then sure: an efficiency drive would reduce demand and then prices. That price reduction would lessen the need for efficiency drives, etc.

To me the "paradox" (correctly named or not) is not so dangerous as the degree to which it is misapplied. Many things are changing on the energy fronts, and I see no sign that any efficiency drive we start here in the US is going to reduce global demand and prices.

Given that global demand is rising faster than oil and natural gas supply, I think the best the "paradox" can do is slow the growth ... slightly, without reducing the attractiveness of efficiency gains.

NOTE: on "define efficiency," I think that's easy. Efficiency is the energy required by the user to accomplish its goals. The user might be a homeowner heating his house, a delivery company fueling it's fleet, or an army defending its nation.

The rhetoric of some hints that they didn't even start as NIMBY's, they started as primitivists, fascists or suicidalists (human extinctionists). Anything that prevents the crash they're so fervently wishing for is against their religion, and they go from NIMBY to BANANA to NOPE (Not On Planet Earth).

I have been trying to make some similar points there to the relationship you point out between efficiency and the adoption of renewables. I appreciate your concise use of the demand curve to illustrate this connection.

I think that this model inherently favours technology with minimal initial investment. You have this marginal step-increase in the cost of petroleum projects followed by a technological response. Then our

It makes sense that the market should pick the cheapest, easiest solutions first rather than the one that might provide the greatest long-term benefit.

"Savings" from efficiency or conservation are not "saved" per se... These savings are absorbed as lower prices.

Both obvious and trivial. They will be if the efficiency growth rate is sufficiently great with respect to the growth of supply to keep the price falling.

If supply does not grow, efficiency gains will restrict the rise in price and thus demand. If efficiency increases fast enough, it may be able to keep the price constant. If we use a broad definition of efficiency and include substitution of other resources, it might even fall - this would reflect a progressive abandonment of the resource.

I don't know why the peakies love Jevons so much. After all, look what happened to his original predictions - he was talking about the UK coal industry and was convinced that coal would peak out and decline and that the UK would decline with it.

Well, you can argue that the UK declined, but it wasn't because of coal. Coal production peaked in the 1980s, a good hundred years later, and not because the coal ran out but because Maggie Thatcher decided to shut down the mines because natural gas from the North Sea was cheaper.

E-P, while you're analysis of oil and Jevon's Paradox is probably accurate on the longterm - i.e. constraints in oil supply will negate the effects of Jevon's paradox - but on short-term time scales, we have already seen examples of Jevon's Paradox at work.

During the late 1970s and 80s, vehicle fuel efficiencies increased in response to high oil prices. The result was a decrease in oil consumption and a resulting decrease in world oil prices by the early 1990s. This in turn created cheap prices at the pump which helped encourage the mass adoption of SUVs and the fuel economy of the light duty fleet decreased/stopped increasing while vehicle miles travelled increased.

That is, short supplies caused high prices which in turn resulted in increased efficiency and decreased demand that lowered prices and eventually caused an increase in oil prices and killed efficiency efforts - a perfect example of Jevon's.

your comments on the 1957 Rickover-Speech in The Oildrum (http://www.theoildrum.com/node/2724) were informative and I have taken the liberty to quote you in my German translation (http://beltwild.blogspot.com/2008/07/salut-fr-den-atom-admiral-hyman.html).

As for the Jevons' Paradox however, I am rather skeptical. The "paradox" is just a special case of the more general question as to whether we are able to save energy (on a national or global scale) by saving energy (on a technical level by introducing energy-saving devices etc.).

I would say we're not. Quite apart from the interesting information that "WattHead" is giving us in his commentary of 03/06/2006, we should not so much focus on whether people will by bigger cars or ride more often, but on the question of what they do with the money that is being saved.

Assuming they by hybrid cars and assuming that they save on their gasoline bill: how do they spend the extra money left in their pockets?They certainly don't flush it down the drain! Maybe the take an extra flight to Hawaii, or by more clothing from China. Even if the State would tax their profit away, it would still flow back into the economy and there induce some demand for extra energy.